Example 18 Scenario  

This example is based on the facts in Example 17. See entire scenario below for full version.

 

In the previous example:

 

In this example:

 

Demonstrated Features

 

Points of Interest

 

Multimedia Presentation

 

Entire Scenario

There are a series of transactions on Mr Smith's account - the first one is on 16 July 2004 and the last one is on 23 November 2006, the balance is currently $6704.35.

 

 

 

 

TX DATE	DUE/AVAIL	DESCRIPTION	AMOUNT	BALANCE	PRINCIPAL	NON-PRN
16/07/2004	30/07/2004	Invoice No. 504	$950.05	$950.05	$950.05	$0.00
24/01/2005	07/02/2005	Invoice No. 505	$1,482.18	$2,432.23	$950.05	$1,482.18
12/10/2005	12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR	$340.60CR	$0.00
11/11/2005	11/11/2005	Dishonoured Cheque Fee	$50.00	$290.60CR	$290.60CR	$0.00
05/11/2005	19/11/2005	Invoice No. 506	$1,313.14	$1,022.54	$1,022.54	$0.00
14/01/2006	28/01/2006	Invoice No. 507	$3,071.38	$4,093.92	$4,093.92	$0.00
10/04/2006	10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92	$1,143.92	$0.00
26/05/2006	09/06/2006	Invoice No. 508	$7,076.15	$8,220.07	$8,220.07	$0.00
15/07/2006	15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09	$6,772.09	$0.00
23/11/2006	23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35	$6,704.35	$0.00

 

He's given a lot of business over the years and has always paid up eventually, but the account has lost too much control now.

 

The credit supply agreement says that interest may be charged daily at the prevailing interest rate that the store pays on its own bank overdraft account, uplifted by 10% of whatever the rate is. For example 5% becomes 5.5% (5% x 1.1). The overdraft rates, before uplift, are:

 

       From                        Rate

       4/4/2004                4%

       5/5/2005                5%

       6/6/2006                6%

       7/7/2007                7%

       8/8/2008                8%

 

       These rates increase as the balance increases:

 

       Balances Over        Additional Rate

       $0                        0.0%

       $2,000                        0.2%

       $4,000                        0.4%

       $6,000                        0.6%

       $8,000                        0.8%

 

The credit supply agreement also says that if the customer's account goes into credit (i.e. the store owes the customer) the store must pay the customer interest at a static rate of 2.5%.

 

Interest is to be calculated daily.

 

Interest is not compounded.

 

Payments are allocated to interest, then principal, then non-principal.

 

The account has 14 day terms. This means that invoices bear the date of sale, but payment for any items purchased on credit is not actually due for a further 14 days. Therefore interest does not run until after the 14 days has expired.

 

There is a legal complication with the second transaction on the account ($1482.18). No interest is chargeable on that amount because of a flaw in the credit supply agreement that wasn't fixed until later.

 

No interest is chargeable on the Dishonoured cheque fee of $50 either - it isn't covered by the agreement at all.

 

We wish to calculate interest as at 21 September 2007.

 

Calculation Results

The results generated by the program are shown below.

 

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Calculation Result

Example 18

 

 

SUMMARY

 

 

 

 

 

 

TRANSACTION HISTORY BEFORE INTEREST IS TAKEN INTO ACCOUNT

TX DATE	DUE/AVAIL	DESCRIPTION	AMOUNT	BALANCE	PRINCIPAL	NON-PRN
16/07/2004	30/07/2004	Invoice No. 504	$950.05	$950.05	$950.05	$0.00
24/01/2005	07/02/2005	Invoice No. 505	$1,482.18	$2,432.23	$950.05	$1,482.18
12/10/2005	12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR	$340.60CR	$0.00
11/11/2005	11/11/2005	Dishonoured Cheque Fee	$50.00	$290.60CR	$290.60CR	$0.00
05/11/2005	19/11/2005	Invoice No. 506	$1,313.14	$1,022.54	$1,022.54	$0.00
14/01/2006	28/01/2006	Invoice No. 507	$3,071.38	$4,093.92	$4,093.92	$0.00
10/04/2006	10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92	$1,143.92	$0.00
26/05/2006	09/06/2006	Invoice No. 508	$7,076.15	$8,220.07	$8,220.07	$0.00
15/07/2006	15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09	$6,772.09	$0.00
23/11/2006	23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35	$6,704.35	$0.00

 

 

PARTICULARS OF INTEREST

 

(a) On 30/07/2004 the opening principal was $950.05, the interest rate on debit balances was amount-dependent rates (namely 4.4% from $0.00, then 4.62% from $2,000.00, then 4.84% from $4,000.00, then 5.06% from $6,000.00, then 5.28% from $8,000.00), the interest rate on credit balances was 2.5% per annum, and the days per year base used to convert the annual interest rates into daily interest rates was 366.

 

(b) Debits and Credits are each applied to interest then to principal then to non-principal.

 

(c) Calculated interest on 31/12/2004 because it was the last day before the days per year base changed (from 366 to 365) on 01/01/2005. Interest on $950.05 (principal) at 4.4% per annum × 155 days (30/07/2004 to 31/12/2004 inclusive) ÷ 366 (days per year) is $17.70, resulting in a new unpaid interest balance of $17.70 ($0.00 plus $17.70).

 

(d) On 01/01/2005 the days per year base used to convert the annual interest rate into the daily interest rate changed to 365. The daily interest rate is now 0.01205479% on debit balances & 0.00684932% on credit balances.

 

 

 

 

(e) Debit on 07/02/2005: "Invoice No. 505" $1,482.18. The transaction occurred on 24/01/2005 but was not due and payable until 07/02/2005. The entire amount was added to non-principal, leaving a new non-principal balance of $1,482.18 ($0.00 plus $1,482.18).

 

(f) Calculated interest on 04/05/2005 because it was the last day before the interest rate changed on 05/05/2005. Interest on $950.05 (principal) at 4.4% per annum × 124 days (01/01/2005 to 04/05/2005 inclusive) ÷ 365 (days per year) is $14.20, resulting in a new unpaid interest balance of $31.90 ($17.70 plus $14.20).

 

(g) On 05/05/2005 the interest rate on debit balances changed to amount-dependent rates (namely 5.5% from $0.00, then 5.72% from $2,000.00, then 5.94% from $4,000.00, then 6.16% from $6,000.00, then 6.38% from $8,000.00).

 

(h) Calculated interest on 11/10/2005 because it was the last day before the balance of principal changed on 12/10/2005. Interest on $950.05 (principal) at 5.5% per annum × 160 days (05/05/2005 to 11/10/2005 inclusive) ÷ 365 (days per year) is $22.91, resulting in a new unpaid interest balance of $54.81 ($31.90 plus $22.91).

 

(i) Credit on 12/10/2005: "Cheque No. 439758" $2,772.83CR. The payment was applied partly to interest ($54.81), partly to principal ($1,235.84), and partly to non-principal ($1,482.18). This left a new unpaid interest balance of $0.00 ($54.81 minus $54.81), a new principal balance of $285.79CR ($950.05 minus $1,235.84), and a new non-principal balance of $0.00 ($1,482.18 minus $1,482.18).

 

 

 

 

(j) Debit on 11/11/2005: "Dishonoured Cheque Fee" $50.00. The entire amount was added to principal, leaving a new principal balance of $235.79CR ($285.79CR plus $50.00).

 

(k) Calculated interest on 18/11/2005 because it was the last day before the balance of principal changed on 19/11/2005. Interest on $235.79CR (principal) at 2.5% per annum × 38 days (12/10/2005 to 18/11/2005 inclusive) ÷ 365 (days per year) is $0.61CR, resulting in a new unpaid interest balance of $0.61CR ($0.00 plus $0.61CR).

 

(l) Debit on 19/11/2005: "Invoice No. 506" $1,313.14. The transaction occurred on 05/11/2005 but was not due and payable until 19/11/2005. The amount was applied partly to interest ($0.61) and partly to principal ($1,312.53) leaving a new unpaid interest balance of $0.00 ($0.61CR plus $0.61) and a new principal balance of $1,076.74 ($235.79CR plus $1,312.53).

 

(m) Calculated interest on 27/01/2006 because it was the last day before the balance of principal changed on 28/01/2006. Interest on $1,076.74 (principal) at 5.5% per annum × 70 days (19/11/2005 to 27/01/2006 inclusive) ÷ 365 (days per year) is $11.36, resulting in a new unpaid interest balance of $11.36 ($0.00 plus $11.36).

 

(n) Debit on 28/01/2006: "Invoice No. 507" $3,071.38. The transaction occurred on 14/01/2006 but was not due and payable until 28/01/2006. The entire amount was added to principal, leaving a new principal balance of $4,148.12 ($1,076.74 plus $3,071.38).

 

(o) Calculated interest on 09/04/2006 because it was the last day before the balance of principal changed on 10/04/2006. Interest on $4,148.12 (principal) at 5.94% per annum × 72 days (28/01/2006 to 09/04/2006 inclusive) ÷ 365 (days per year) is $48.60, resulting in a new unpaid interest balance of $59.96 ($11.36 plus $48.60).

 

(p) Credit on 10/04/2006: "Cheque No. 439759" $2,950.00CR. The payment was applied partly to interest ($59.96) and partly to principal ($2,890.04) leaving a new unpaid interest balance of $0.00 ($59.96 minus $59.96) and a new principal balance of $1,258.08 ($4,148.12 minus $2,890.04).

 

(q) Calculated interest on 05/06/2006 because it was the last day before the interest rate changed on 06/06/2006. Interest on $1,258.08 (principal) at 5.5% per annum × 57 days (10/04/2006 to 05/06/2006 inclusive) ÷ 365 (days per year) is $10.81, resulting in a new unpaid interest balance of $10.81 ($0.00 plus $10.81).

 

(r) On 06/06/2006 the interest rate on debit balances changed to amount-dependent rates (namely 6.6% from $0.00, then 6.82% from $2,000.00, then 7.04% from $4,000.00, then 7.26% from $6,000.00, then 7.48% from $8,000.00).

 

(s) Calculated interest on 08/06/2006 because it was the last day before the balance of principal changed on 09/06/2006. Interest on $1,258.08 (principal) at 6.6% per annum × 3 days (06/06/2006 to 08/06/2006 inclusive) ÷ 365 (days per year) is $0.68, resulting in a new unpaid interest balance of $11.49 ($10.81 plus $0.68).

 

(t) Debit on 09/06/2006: "Invoice No. 508" $7,076.15. The transaction occurred on 26/05/2006 but was not due and payable until 09/06/2006. The entire amount was added to principal, leaving a new principal balance of $8,334.23 ($1,258.08 plus $7,076.15).

 

(u) Calculated interest on 14/07/2006 because it was the last day before the balance of principal changed on 15/07/2006. Interest on $8,334.23 (principal) at 7.48% per annum × 36 days (09/06/2006 to 14/07/2006 inclusive) ÷ 365 (days per year) is $61.49, resulting in a new unpaid interest balance of $72.98 ($11.49 plus $61.49).

 

(v) Credit on 15/07/2006: "Cheque No. 439760" $1,447.98CR. The payment was applied partly to interest ($72.98) and partly to principal ($1,375.00) leaving a new unpaid interest balance of $0.00 ($72.98 minus $72.98) and a new principal balance of $6,959.23 ($8,334.23 minus $1,375.00).

 

(w) Calculated interest on 22/11/2006 because it was the last day before the balance of principal changed on 23/11/2006. Interest on $6,959.23 (principal) at 7.26% per annum × 131 days (15/07/2006 to 22/11/2006 inclusive) ÷ 365 (days per year) is $181.33, resulting in a new unpaid interest balance of $181.33 ($0.00 plus $181.33).

 

(x) Credit on 23/11/2006: "Cheque No. 439761" $67.74CR. The payment was applied entirely to interest, leaving a new unpaid interest balance of $113.59 ($181.33 minus $67.74).

 

(y) Calculated interest on 06/07/2007 because it was the last day before the interest rate changed on 07/07/2007. Interest on $6,959.23 (principal) at 7.26% per annum × 226 days (23/11/2006 to 06/07/2007 inclusive) ÷ 365 (days per year) is $312.83, resulting in a new unpaid interest balance of $426.42 ($113.59 plus $312.83).

 

(z) On 07/07/2007 the interest rate on debit balances changed to amount-dependent rates (namely 7.7% from $0.00, then 7.92% from $2,000.00, then 8.14% from $4,000.00, then 8.36% from $6,000.00, then 8.58% from $8,000.00).

 

(aa) Calculated interest on 21/09/2007. Interest on $6,959.23 (principal) at 8.36% per annum × 77 days (07/07/2007 to 21/09/2007 inclusive) ÷ 365 (days per year) is $122.73, resulting in a new unpaid interest balance of $549.15 ($426.42 plus $122.73).

 

(ab) As at 21/09/2007 the total amount owing is seven thousand five hundred and eight dollars and thirty-eight cents ($7,508.38) comprised of principal of six thousand nine hundred and fifty-nine dollars and twenty-three cents ($6,959.23) and accumulated interest of five hundred and forty-nine dollars and fifteen cents ($549.15).

 

(ac) Total interest for the period 30/07/2004 to 21/09/2007 (1149 days) was eight hundred and four dollars and three cents ($804.03).

 

(ad) Interest on $6,959.23 continues to accumulate at one dollar and fifty-nine cents ($1.59) per day on and from 22/09/2007.

 

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Calculation Result

Example 18

 

TRANSACTION HISTORY BEFORE INTEREST IS TAKEN INTO ACCOUNT

TX DATE	DUE/AVAIL	DESCRIPTION	AMOUNT	BALANCE	PRINCIPAL	NON-PRN
16/07/2004	30/07/2004	Invoice No. 504	$950.05	$950.05	$950.05	$0.00
24/01/2005	07/02/2005	Invoice No. 505	$1,482.18	$2,432.23	$950.05	$1,482.18
12/10/2005	12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR	$340.60CR	$0.00
11/11/2005	11/11/2005	Dishonoured Cheque Fee	$50.00	$290.60CR	$290.60CR	$0.00
05/11/2005	19/11/2005	Invoice No. 506	$1,313.14	$1,022.54	$1,022.54	$0.00
14/01/2006	28/01/2006	Invoice No. 507	$3,071.38	$4,093.92	$4,093.92	$0.00
10/04/2006	10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92	$1,143.92	$0.00
26/05/2006	09/06/2006	Invoice No. 508	$7,076.15	$8,220.07	$8,220.07	$0.00
15/07/2006	15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09	$6,772.09	$0.00
23/11/2006	23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35	$6,704.35	$0.00

 

 

 

 

INTEREST CALCULATION TABLE

TX DATE	DUE/AVAIL	DESCRIPTION	DAYS	AMOUNT	BALANCE	PRINCIPAL	INTEREST	NON-PRINC
(Same)	30/07/2004	Interest rate started at 4.4% on debit balances & 2.5% on credit balances (0.01202186% & 0.0068306% per day).			$950.05DR	$950.05DR	$0.00DR	$0.00DR
(Same)	31/12/2004	Interest (30/07/2004 to 31/12/2004 inclusive) $950.05 × 0.01202186% × 155 days = $17.70.	155	$17.70DR	$967.75DR	$950.05DR	$17.70DR	$0.00DR
(Same)	01/01/2005	Days per year changed to 365. Daily interest rate now 0.01205479% on debit balances & 0.00684932% on credit balances.			$967.75DR	$950.05DR	$17.70DR	$0.00DR
24/01/2005	07/02/2005	Invoice No. 505. The transaction occurred on 24/01/2005 but was not due and payable until 07/02/2005. Entire amount added to non-principal.		$1,482.18DR	$2,449.93DR	$950.05DR	$17.70DR	$1,482.18DR
(Same)	04/05/2005	Interest (01/01/2005 to 04/05/2005 inclusive) $950.05 × 0.01205479% × 124 days = $14.20.	124	$14.20DR	$2,464.13DR	$950.05DR	$31.90DR	$1,482.18DR
(Same)	05/05/2005	Interest rate on debit balances changed to amount-dependent rates (namely 5.5% from $0.00, then 5.72% from $2,000.00, then 5.94% from $4,000.00, then 6.16% from $6,000.00, then 6.38% from $8,000.00) (currently 0.01506849% per day).			$2,464.13DR	$950.05DR	$31.90DR	$1,482.18DR
(Same)	11/10/2005	Interest (05/05/2005 to 11/10/2005 inclusive) $950.05 × 0.01506849% × 160 days = $22.91.	160	$22.91DR	$2,487.04DR	$950.05DR	$54.81DR	$1,482.18DR
(Same)	12/10/2005	Cheque No. 439758. Payment applied partly to interest ($54.81), partly to principal ($1,235.84), and partly to non-principal ($1,482.18).		$2,772.83CR	$285.79CR	$285.79CR	$0.00DR	$0.00DR
(Same)	11/11/2005	Dishonoured Cheque Fee. Entire amount added to principal.		$50.00DR	$235.79CR	$235.79CR	$0.00DR	$0.00DR
(Same)	18/11/2005	Interest (12/10/2005 to 18/11/2005 inclusive) $235.79CR × 0.00684932% × 38 days = $0.61CR.	38	$0.61CR	$236.40CR	$235.79CR	$0.61CR	$0.00DR
05/11/2005	19/11/2005	Invoice No. 506. The transaction occurred on 05/11/2005 but was not due and payable until 19/11/2005. Payment was applied partly to interest ($0.61) and partly to principal ($1,312.53).		$1,313.14DR	$1,076.74DR	$1,076.74DR	$0.00DR	$0.00DR
(Same)	27/01/2006	Interest (19/11/2005 to 27/01/2006 inclusive) $1,076.74 × 0.01506849% × 70 days = $11.36.	70	$11.36DR	$1,088.10DR	$1,076.74DR	$11.36DR	$0.00DR
14/01/2006	28/01/2006	Invoice No. 507. The transaction occurred on 14/01/2006 but was not due and payable until 28/01/2006. Entire amount added to principal.		$3,071.38DR	$4,159.48DR	$4,148.12DR	$11.36DR	$0.00DR
(Same)	09/04/2006	Interest (28/01/2006 to 09/04/2006 inclusive) $4,148.12 × 0.01627397% × 72 days = $48.60.	72	$48.60DR	$4,208.08DR	$4,148.12DR	$59.96DR	$0.00DR
(Same)	10/04/2006	Cheque No. 439759. Payment was applied partly to interest ($59.96) and partly to principal ($2,890.04).		$2,950.00CR	$1,258.08DR	$1,258.08DR	$0.00DR	$0.00DR
(Same)	05/06/2006	Interest (10/04/2006 to 05/06/2006 inclusive) $1,258.08 × 0.01506849% × 57 days = $10.81.	57	$10.81DR	$1,268.89DR	$1,258.08DR	$10.81DR	$0.00DR
(Same)	06/06/2006	Interest rate on debit balances changed to amount-dependent rates (namely 6.6% from $0.00, then 6.82% from $2,000.00, then 7.04% from $4,000.00, then 7.26% from $6,000.00, then 7.48% from $8,000.00) (currently 0.01808219% per day).			$1,268.89DR	$1,258.08DR	$10.81DR	$0.00DR
(Same)	08/06/2006	Interest (06/06/2006 to 08/06/2006 inclusive) $1,258.08 × 0.01808219% × 3 days = $0.68.	3	$0.68DR	$1,269.57DR	$1,258.08DR	$11.49DR	$0.00DR
26/05/2006	09/06/2006	Invoice No. 508. The transaction occurred on 26/05/2006 but was not due and payable until 09/06/2006. Entire amount added to principal.		$7,076.15DR	$8,345.72DR	$8,334.23DR	$11.49DR	$0.00DR
(Same)	14/07/2006	Interest (09/06/2006 to 14/07/2006 inclusive) $8,334.23 × 0.02049315% × 36 days = $61.49.	36	$61.49DR	$8,407.21DR	$8,334.23DR	$72.98DR	$0.00DR
(Same)	15/07/2006	Cheque No. 439760. Payment was applied partly to interest ($72.98) and partly to principal ($1,375.00).		$1,447.98CR	$6,959.23DR	$6,959.23DR	$0.00DR	$0.00DR
(Same)	22/11/2006	Interest (15/07/2006 to 22/11/2006 inclusive) $6,959.23 × 0.01989041% × 131 days = $181.33.	131	$181.33DR	$7,140.56DR	$6,959.23DR	$181.33DR	$0.00DR
(Same)	23/11/2006	Cheque No. 439761. Payment applied entirely to interest.		$67.74CR	$7,072.82DR	$6,959.23DR	$113.59DR	$0.00DR
(Same)	06/07/2007	Interest (23/11/2006 to 06/07/2007 inclusive) $6,959.23 × 0.01989041% × 226 days = $312.83.	226	$312.83DR	$7,385.65DR	$6,959.23DR	$426.42DR	$0.00DR
(Same)	07/07/2007	Interest rate on debit balances changed to amount-dependent rates (namely 7.7% from $0.00, then 7.92% from $2,000.00, then 8.14% from $4,000.00, then 8.36% from $6,000.00, then 8.58% from $8,000.00) (currently 0.02290411% per day).			$7,385.65DR	$6,959.23DR	$426.42DR	$0.00DR
(Same)	21/09/2007	Interest (07/07/2007 to 21/09/2007 inclusive) $6,959.23 × 0.02290411% × 77 days = $122.73.	77	$122.73DR	$7,508.38DR	$6,959.23DR	$549.15DR	$0.00DR
		Final Balance	1149		$7,508.38DR	$6,959.23DR	$549.15DR	$0.00DR

 

 

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Calculation Notes

 

The following information is provided to give you a complete understanding of the calculation, so even the finest details are available if ever needed.

 

1. The debit interest rates have been taken from the debit rates file (my overdraft rate no 2).

 

2. The main calculation options (such as days per year, credit application order and rounding) have been taken from the debit rates file where they are embedded as part of the rates specification. These options can be changed for individual calculations in Settings|Options, or for all new cases in Settings|Setup.

 

3. The credit interest rates (if required) have been taken from the settings on the main form.

 

4. The debit file rate definition has been partially modified (overridden) on the main form.

 

5. Decimal Rounding. When converting from an annual rate of interest to a daily rate of interest, and except if overridden in an interest rates file, the program has rounded-up to 8 decimal places, eg 8.12512324924555 is rounded to 8.12512325%. You can change the setting in Settings|Options.

 

6. Calendar Year. You are using the "Calendar Year" method for converting the annual interest rate to the daily interest rate. In many cases this is the most accurate setting but you should be aware that it adds complexity to the calculation report because it requires additional interest calculations before and after each leap year. If you require a simpler report and it is appropriate to do so then choose a different setting. The setting is either embedded in the Options section of the selected interest rate file or else it is set in Settings|Options on the main form. In either case you can change or override the setting for a particular calculation in Settings|Options. Please note that such settings only apply to the current calculation. You can change the default value that affects all new calculations in Settings|Setup. The default value cannot however automatically override any setting in the Options part of an interest rate file - you still have to override on an individual basis as explained above.